Mr. Bush

Photo: File

The UK will not require the Cayman Islands Government to implement direct taxation as a way of getting through the current financial crisis.

Premier McKeeva Bush led a delegation to London last week to discuss the findings of a three-person independent commission that analysed the fiscal problems facing the Cayman Islands Government.

The so-called Miller Report, which was made public on Monday, made 12 recommendations on fiscal sustainability for the Cayman Islands.  The first recommendation was that the government not impose direct taxation, Mr. Bush said.

“It would be no surprise for you to hear that we agree with this general conclusion and believe that ideally new revenue measures will need to be kept at a minimum for the short to medium term,” he said.  “However, we are committed to examining ways to broadening the revenue base and we have given that commitment to the UK.

“We received no indications during the meetings that the [Foreign & Commonwealth Office] will be pushing for direct taxes, although this is something that they would like for us to continue to consider in our efforts to broaden the revenue base.”

Mr. Bush said the Foreign Office agreed “on the vast majority of the recommendations” outlined by the Miller Report, noting however, that the UK disagreed on the subject of direct taxation.

“But even on that subject, there seems to be an understanding by the FCO that the Cayman Islands needs to examine a broadening of the revenue base in a manner which makes this country’s economy sustainable,” he said. “The UK did make the observation that they would have liked to see more analysis in the Miller Report on the question of what types of taxes may be suitable for the Cayman Islands.

“But in the end they very much accepted that a key issue for the government in securing fiscal sustainability is to reduce and control its expenditures and its borrowing levels.”

Although Mr. Bush said the government remained committed to examining ways in which Cayman’s revenue base could be broadened, he said any approach to do so “must be consistent with the nature of the Cayman Islands economy to ensure that there is no negative impact on our economic success”.

“Our position is, and will continue to consistently be, that we do not believe that direct taxes are good for this country,” he said. “Indeed we believe that it will change our way of life as we know it, for the worse.”

Mr. Bush said the Foreign Office also continued to suggest the Cayman Islands’ international reputation would be improved if it were to introduce some form of direct tax because it would be less likely to be viewed as a tax haven.

“The Cayman Islands reiterated the risks associated with taking this course and after discussions, the Government agreed to continue to examine ways to broaden the revenue base, but in ways that would be suitable to the Cayman Islands [and] consistent with the country’s economic model.  

Mr. Bush said he stuck to his position on taxation during last week’s meetings and although the UK did not necessarily agree with the position, they would not push the Cayman Islands into direct taxation.

“So, this is a huge win for the people of these Islands after being told we’d have to be [implementing direct taxation].”

Public service cuts

The Miller Report also recommended significant reductions in government expenditure when it came to the Civil Service, including pension benefits, healthcare costs, salaries, and in the number of civil servants.

Mr. Bush said the government agreed with all of the recommendations, some subject to legal considerations.

“There was substantial discussion on expenditures relating to the Civil Service,” Mr. Bush said of his meetings in London. “The UK made it clear that it strongly supported the observation in the Miller Report regarding the significant growth in public expenditure as compared to the growth of the economy.”

Mr. Bush said that in the Foreign Office’s opinion, a more aggressive approach should be taken to the reduction of expenditures. 

“They felt that the suggestion of a four-per-cent reduction in civil servant salaries, which was being discussed locally, was too low given the gravity of the situation and gave the example of the 10 per cent cut in Civil Service salaries and a 50-per-cent reduction in public sector expenditures in Turks and Caicos in support of their argument.”

In relation to recommendation by the Miller Report that the numbers of civil servants be reduced over the next five years, Mr. Bush said the government would support the governor in the reduction “on the basis that this is done in a reasonable and compassionate manner”.

“However, we believe that this should be achieved via the divestment of various authorities and government agencies and by the recommended restructuring of Government departments,” he said. “To be clear: My Government does not believe that the government should be aggressively laying off civil servants in the current economic climate for both economic and social reasons.”  

Explaining one way the number of civil servants could be reduced, Mr. Bush said that if the government privatized certain government functions, the civil servants could transfer over to the private sector.

“The civil servants will still have jobs,” he said. “When that piece of business goes, they go with it.”

Mr. Bush said there must be cuts in Civil Service expenditure and he reiterated that the UK wasn’t “satisfied with any four-per-cent” cut.

“That’s ridiculous in the current situation,” he said.

“If you’re making $3,000 per month, it’s better to receive [less] and take your cut rather than have no job,” he said, adding that people needed to “bite the bullet” until the economy turned around, at which time salaries could be revisited.

“Pain now, relief later,” he said.

Mr. Bush said Governor Duncan Taylor said he was willing to meet directly with the Civil Service on the subject of the reduction of expenditures generally.

“That will happen in the next couple of weeks,” he said.

Although the public expenditure cuts wouldn’t commence in March, Mr. Bush said they would be in place for April, May and June, the final three months of the fiscal year.